Briefly:

Intraday trade: Our Tuesday's intraday trading outlook was neutral. It proved partly accurate. The S&P 500 lost 0.3% following slightly higher opening of the trading session (+0.1%). The market retraced some of its two-day record-setting rally. We still can see technical overbought conditions. However, there have been no confirmed negative signals so far. Therefore, we prefer to be out of the market again, avoiding low risk/reward ratio trades.

Medium-term trade: In our opinion, no medium-term positions are justified.

Our intraday outlook is neutral today. Our short-term outlook is neutral, and our medium-term outlook is neutral:

Intraday outlook (next 24 hours): neutral
Short-term outlook (next 1-2 weeks): neutral
Medium-term outlook (next 1-3 months): neutral

The U.S. stock market indexes lost 0.2-0.4% on Tuesday, as investors took some short-term profits off the table. The S&P 500 index trades just 0.5% below its Monday's new all-time high of 2,694.97. The Dow Jones Industrial Average lost 0.2%, as it was relatively stronger than the broad stock market yesterday. The technology Nasdaq Composite lost 0.4%. The nearest important level of support of the S&P 500 index is at 2,680-2,685, marked by Monday's daily gap up of 2,679.63-2,685.92. The next support level is at 2,670, marked by recent consolidation. The level of support is also at 2,640-2,650, marked by the December 8 daily gap up of 2,640.99-2,644.10. On the other hand, resistance level is at around 2,695-2,700, marked by new all-time high. There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions along with negative technical divergences:

Positive Expectations

Expectations before the opening of today's trading session are positive, with index futures currently up 0.3% vs. their Tuesday's closing prices. The European stock market indexes have lost 0.1-0.3% so far. Investors will wait for some economic data announcements: Existing Home Sales at 10:00 a.m., Crude Inventories at 10:30 a.m. The market expects that the Existing Home Sales were at 5.53M in November. The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of its yesterday's decline. The nearest important level of support is at around 2,680-2,685, marked by yesterday's daily low. On the other hand, resistance level is at 2,690-2,700, marked by new record high. The futures contract remains close to its new record high, as we can see on the 15-minute chart:

Nasdaq Also Higher

The technology Nasdaq 100 futures contract follows a similar path, as it retraces its yesterday's decline. The market has bounced off support level at around 6,490-6,500. On the other hand, level of resistance is at 6,540, marked by new all-time high. The Nasdaq 100 futures contract trades above 6,500 mark, as the 15-minute chart shows:

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com) again. The price reached new record high on Monday, as it broke above $175 mark. However, it failed to continue that rally yesterday. The nearest important support level remains at around $170, marked by the early November daily gap up. Will uptrend continue? Or is this still just over-month-long topping consolidation?

The Dow Jones Industrial Average daily chart shows that blue-chip index extended its long-term uptrend recently, despite some negative technical divergences. The most common divergences are between asset’s price and some indicator based on it (for instance the index and RSI based on the index). In this case, the divergence occurs when price forms a higher high and the indicator forms a lower high. It shows us that even though price reaches new highs, the fuel for the uptrend starts running low. We still can see potential two-month-long rising wedge pattern:

Concluding, the S&P 500 index lost 0.3% on Tuesday, as it retraced some of its two-day rally. For now, it looks like a downward correction, and the broad stock market remains relatively close to its record high. We still can see medium-term overbought conditions along with negative technical divergences. However, there have been no confirmed negative signals so far.

Currently, we prefer to be out of the market, avoiding low risk/reward ratio medium-term trades. We will let you know when we think it is safe to get back in the market.

To summarize: no medium-term positions are justified from the risk/reward perspective at this moment.

Intraday trade:

No intraday position is justified from the risk/reward perspective today.

No medium-term position is justified from the risk/reward perspective at this moment.

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts